Some wonky thoughts on economic policy in a time of pandemic. A number of people have been saying similar things, but I thought it might be useful to put them in a sort of standard, Econ 101 framework — namely, aggregate supply and aggregate demand 1/
AS-AD posits an upward-sloping relationship between output/employment and inflation — that's aggregate supply — and a downward-sloping relationship from the demand side. Yes, I know there are lots of criticisms of this framework, but I think it's good enough for my point 2/
So here's the picture as I see it. Covid-19 is a major adverse shock to both the supply side and the demand side, with the demand-side shock apparently larger — deflationary pressure seems to outweigh any inflation from disrupted supply 3/ 
The horizontal dotted line is target inflation (I don't think this matters much — raising the inflation target wouldn't do much right now). What the figure shows is that much of the job loss we're facing can be attributed to the supply shock 4/
And here's the thing: we can't and shouldn't try to offset that supply shock, which is the result of sick people and those in nonessential businesses staying home, as they should. What we should try to prevent are only the additional job losses driven by falling demand 5/
The point is that only part of what we're facing is a conventional recession, which can be offset by fiscal and monetary policy. The rest of it is more like a natural disaster, where the government's role is to help families avoid economic hardship, not put them back to work 6/
What we're hearing about the Senate bill, however, is that it consists almost entirely of stimulus — poorly designed stimulus — and goes out of its way to avoid alleviating hardship. No expansion of unemployment benefits, no additional sick leave ... 7/
Even the cash grants are designed so that those who need them most don't get the full amount, and many wouldn't get anything. The reflex of cruelty to those in need means that what we seem to be getting simply fails to address the major problem 8/
